Happy New Financial Year!!
We'd like to take this opportunity of wishing you a very successful 2011/12.
Directors' Personal Liability Extended
The Federal Budget included changes in relation to the Director Penalty Notices ("DPN") to counter phoenix arrangements. This involves a company accumulating debts and then going into liquidation to avoid paying the debt but continuing to run the business as another corporate entity. To counter this arrangement it has been proposed that The Commissioner of Taxation may commence proceedings to recover from a Director certain taxes payable by the Company, where those taxes have remained unpaid and unreported for three months, without giving the Director 21 days notice in the form of a DPN. In effect this makes the director personally liable in respect of unpaid company liabilities falling within the DPN regime, without the need for a DPN being issued. Companies that report their liabilities within the three month period will be subject to the normal arrangement requiring a DPN to be issued before personal liability may be enforced.
Other proposed changes to the DPN regime include DPNs applying to the Company's unpaid superannuation guarantee amounts so that Directors may become personally liable for those amounts and directors and their associates can no longer claim the benefit of tax withheld credits in their individual tax returns, where the Company has failed to remit PAYG withholding amounts to the ATO.
If your Company has failed to remit monies to the ATO or has or unpaid superannuation guarantee obligations, you must take advice on how to normalise your affairs, prior to any action commenced by the ATO.
Education Tax Refund Changes
Families eligible for the Education Tax Refund should be aware that school-approved uniforms including hats, footwear and sports uniforms are now able to be claimed when working out your entitlement effective 1 July 2011. Please note a claim can only be made on expenses where a receipt has been kept. If you receive the Family Tax Benefit A you are entitled to claim the Education Tax Refund on your income tax return. School-approved uniforms including hats, footwear and sports uniforms approved by the school as its uniform
Do You Have A Cashflow Strategy?
There seems to be little doubt that, in Australia at present, a two-stage economy is operating. Whilst it is generally accepted that the peak economic development is being driven by the mining industry, it is interesting to note that in April 2011, the two highest industry groups facing insolvency problems were mining and retailing. So whilst the high economic activity in some parts of Australia is very welcome, there are also some danger signs in other parts of the Australian economy, including:
- the highest rate of insolvencies recorded this year have occurred in the month of April 2011;
- the recent closure of some major retail businesses in the book selling and clothing industry, highlighted problems that retailers are having;
- the high A$ as compared to the US$ and other major overseas currencies is making life very difficult for exporters and the Australian tourism industry;
- debtors' days outstanding continues to blow-out. Dun & Bradstreet's latest report indicated that debtors' days outstanding has moved by 2 days to 56 days;
- whilst the Reserve Bank, at its July meeting, left the official interest rate at 4.75%, there is considerable speculation by economists that interest rates could continue to rise later in 2011, perhaps to 5.25%.
Another problem that needs to be factored into decision-making by SMEs is the continuing problems being experienced in Greece, Ireland and Portugal, which could lead to further banking problems in Europe; the effects of which could also be felt in Australia.
The American economy is not performing at a high efficiency and this is the prime reason for the high value of the Australia dollar -v- the US dollar.
What does all this mean to you, as an SME, in the determination of a cashflow strategy? Should you be trying to lock in interest rates (it might be worth asking your bank manager).
Cash is king. Have you implemented strong cashflow management strategies to benefit your business?
Do you need to improve the management of debtors, work in progress and stock?
What are your cashflow forecasts indicating will be the cash requirements of your business during 2011/12? Will you need to raise an additional bank overdraft, loan facility or investment capital during the next twelve months?
What effect is the Australian government's carbon tax (at a charge of $23 per tonne), scheduled to commence from July 2012, going to have on your business?
Now is the time... at the start of a new financial year, to review your marketing plan, budgets & cashflow forecasts and business plan to calculate your business' capital requirements and have discussions with your banker/lender or, if you need to, prepare documentation for submission to business angels, in an attempt to raise additional capital for your business.
If you would like to discuss these matters with us, please don't hesitate to contact us to arrange a meeting.
Cashflow Forecasts & Budgets Are Important
There are a lot of uncertainties at present relating to interest rates, exchange rates, property values, unemployment, carbon tax, debtor payments, the cost of fuel, banks' attitudes to SMEs and the Australian Taxation Office's increased scrutiny in the small/medium enterprise market area.
All of these uncertainties highlight the necessity for businesses to spend some critical quality time working "on the business" in planning budgets & cashflow forecasts for the next twelve months. A budget will show the expected income and expenditure for the business and the emerging profit. You can calculate various "what if" scenarios to factor in a potential change in circumstances e.g. higher interest rates, higher fuel costs and, if you are an exporter or importer, changes in currency conversion rates.
Accurate budgets let you identify problems in advance. You can then try to do something about the problem or arrange finance to cover the additional costs. Cashflow forecasts reflect the figures contained within the budget, as well as taxation commitments, loan repayments, dividends or drawings, capital expenditure, cash receipt expectations from debtors and payment to creditors. You can also factor in the anticipated movement in the investment that you have in debtors, stock and work in progress.
We can assist you in the preparation of budgets and cashflow forecasts to help you develop an effective plan for the next twelve months.
Tradex Scheme Helps Importers' Cashflow Management
Importers can avail themselves of the Tradex Scheme to preserve cashflow by not having to pay upfront payments for custom duty, GST or other taxes, if it is expected that the imported goods are to be subsequently exported or incorporated in goods that are exported, within one year. If you would like assistance to register for the Tradex Scheme, please don't hesitate to contact us.
Review Debt Covenants
Now is a good time to review your bank/loan facility documents and prepare a summary of those documents highlighting the covenants that you've entered into with your bank. These could include:
- working capital to borrowed funds ratio
- debt to equity ratio
- dates when regular reports need to be lodged with the bank, including:
- Trading and Profit & Loss Account
- Trading and Profit & Loss Account Ratio Analysis
- Balance Sheet
- Balance Sheet Ratio Analysis
- Debtors' Aged Analysis
- Creditors' Aged Analysis
- A summary of investment in Work in Progress
- A summary of investment in Stock
- Updated Cashflow Forecast
The review will help you ensure that you're complying with the covenants that the bank established when they created the facility with your business.
Characteristics Of A Well-Run Business
There are many characteristics of a successful business. Here we list some of them. Not all of them will be applicable to each business. Approximately 80% will apply to all businesses. Characteristics are:
- Personal Capacity & Development
- Customer Knowledge & Service
- Product/Industry Knowledge
- Excellent Systems
- Excellent Analysis of Results
- Cash Control
- Stock Management
- Work in Progress Control
- Debtor Control
- Cost Control
- Staff Management & Motivation
- Marketing Expertise
- Ability to Change with Market Conditions
- Assessment of Competitors
- Capital Base
- Use of Professional Advisers
- Excellent Planning
- Quality Management
- Excellent Management/Administration
Would you like to receive further details on these items to enable you to review your business operations?
Carbon Tax Announcement By Government
The government has announced some grants to SMEs as part of the carbon tax:
- Manufacturers can apply for grants of up to $25,000 to help reduce their energy use. The grants will be on a 1/3 government contribution basis.
- The motor vehicle write-off for businesses with turnovers under $2M will be $6,500 on motor vehicles purchased after 1st July 2012.
- Grants will be available for food manufacturers and metal foundries.